Special Protection Allowed for Service Members in Real Property Transactions
By Real Estate and Land Use Practice Group
Saalfeld Griggs PC
In 2009, Oregon will experience its largest deployment of National Guard members since World War II. If you are a party to a real property transaction with a service member you should take time to familiarize yourself, if you have not already, with the Servicemembers’ Civil Relief Act (“SCRA” or “Act”). SCRA is federal legislation that provides legal rights to service members who are called to active duty. These rights and protection are substantial and far reaching and certain violations of the Act can result in serious civil or criminal penalties. This article discusses the purpose and scope of SCRA, as well as termination of existing contracts and lenders’ rights under the Act.
SCRA specifically states that the purpose of the Act is “to provide for, strengthen, and expedite the national defense through protection extended by this Act to service members of the United States to enable such persons to devote their entire energy to the defense needs of the Nation…” This statement not only captures the general policy behind the Act, but also infers the deferential manner in which the Act is applied. The Act also has broad application to many military personnel on active duty. The Act defines “servicemember” to include members of the Army, Navy, Air Force, Marine Corps, or Coast Guard. In addition, the Act applies to members of the National Guard who are called to active duty for a period of more than 30 days. The simplest way to determine military status is to visit the Defense Manpower Data Center (“DMDC”) website. This website provides the ability to determine whether a service member is serving on active military duty and is therefore entitled to the protections under the SCRA. Requests may also be sent to the DMDC via regular mail.
As mentioned, the scope of the SCRA is far reaching. The protections granted under the Act include reduction in the maximum rate of interest which may be charged on debt, and a stay of legal proceedings or judgments. The Act can also affect statutes of limitations, small claims actions, certain contractual obligations, adoptions, personal and business property rights, liens, insurance, public land rights, and certain other court actions, including will contests. Of these protections mentioned however, few have as much potential to result in serious penalties as those protections dealing with real property.
TERMINATION OF EXISTING CONTRACTS
Landlords must be especially cognizant of the SCRA, as service members have a right to terminate residential leases and rental agreements which were entered into prior to active duty. The SCRA confers the right upon service members, or their dependants, to terminate a lease used primarily for residential purposes without penalty, provided the monthly rent does not exceed $2,932.31 (this is the 2009 figure which has been adjusted per the statute). Additionally, for leases entered into after a service member has been called to active duty, the SCRA allows termination of the agreement when the service member receives orders for a permanent change of station or deployment for 90 days or more. Landlords may still be able to receive a court order to execute an eviction, but expedited court processes and self-help remedies are not allowed under the SCRA. Furthermore, service members may be entitled to a stay of the court proceedings for 90 days.
Criminal penalties may attach to landlords who knowingly attempt to take part in an eviction to which the Act applies. The crime is a misdemeanor and landlords may be subject to fines, imprisonment for up to one year, or both.
Given the current economic landscape, and the difficulty in obtaining credit and loans, seller financing through land sale or installment contracts is becoming more common. Like residential leases, if a service member entered into the contract for real or personal property prior to being called to active duty and if they are not able to fulfill their obligations under the contract, the contract may not be rescinded or terminated and the property cannot be repossessed. Knowing repossession of property in violation of these rules is a misdemeanor subject to the same penalties as described above. Furthermore, courts have the discretion to order repayment of previously paid installments or deposits as a condition of terminating the contract and resuming possession of the property.
The SCRA also impacts lenders’ rights to foreclose mortgages, deeds of trust, and other security instruments executed by service members prior to being called to active duty and for which they are still obligated. The provisions of the Act will apply if the action is filed within 90 days after the service member’s period of active duty. In an action to foreclose a security interest, if a court finds that the service member’s ability to satisfy the obligations are materially affected by military service, the court may stay the proceedings or adjust the obligation to preserve the interests of all parties. Since court orders for sales, foreclosures, or property seizures are required under the Act, self-help remedies and expedited processes are not available in matters involving service members. Violations of these provisions are misdemeanor offenses and carry the maximum penalties described above.
If you have a situation where you feel SCRA applies, or may apply to an opposing party, feel free to contact our office.